In his blog post last week, David Stutzman presented several examples illustrating ways in which architects fail in their fiduciary duty to owners, typically through covert advocacy and through not obtaining the owner's informed consent for material decisions made during the course of the architect's work. He forcefully stated that the fiduciary duty will force specifications to the top of the list of the deliverables that will be provided to owners.
Over the past several years, the concept of design professionals owing a fiduciary duty has been gaining steam, and there is now an organization called FDI-AEC, founded by Ujjval Vyas, Ph.D., JD, dedicated to promote the idea and support design professionals who transition to operating under the fiduciary duty model. The FDI-AEC working group, of which David Stutzman is a founding member, is collecting data, developing positions, and presenting concepts in support of fiduciary duty. Dr. Vyas and FDI-AEC have recently conducted an all-day conference for interested stakeholders and have presented the concept at multiple industry events, including at CONSTRUCT.
It's worthwhile at this point take a big picture look at this issue and discuss some important points:
Robert H. Sitkoff provided the following operative definition of fiduciary duty as it relates to agents and principals (professionals and their clients - building owners):
The law tends to impose fiduciary obligation in circumstances that present what economists call a principal–agent or agency problem. An agency problem arises whenever one person, the principal, engages another person, the agent, to undertake imperfectly observable discretionary actions that affect the welfare of the principal. Agency problems therefore arise not only in relationships governed by the common law of agency, but also in trust law, corporate law, and a host of other contexts.
Agency problems are pervasive because no one has the skills necessary to do everything for himself and because every undertaking has an opportunity cost. By delegating a task to an agent, the principal benefits from specialist service and is freed to undertake some other activity. But these benefits come at the cost of being made vulnerable to abuse if the agent is given discretion the exercise of which cannot easily be observed or verified. In such circumstances, the agent may be tempted to favor the agent’s interests when they diverge from those of the principal. The losses and other inefficiencies resulting from this misalignment of interests are called agency costs. [1]
In general, a fiduciary duty exists in business relationships where there are asymmetries of power, knowledge or prestige and the client (principal) lacks capacity for oversight of the activities of the agent (professional). It is an affirmative duty from the professional to the client and requires the fulfillment of its own duties of care and loyalty to the principal in addition to the standard tort duties to provide non-negligent duties and fulfill the contractual elements of the engagement.
The care and loyalty of a fiduciary relationship differentiates it from arms-length business transactions. This is best illustrated in the medical arena: When you visit your doctor, the practitioner has a fiduciary duty to protect your interests and to use best professional judgment on your behalf. You lack the knowledge to diagnose and treat yourself; that’s the asymmetry of knowledge. The doctor has a duty to attempt to determine the cause of the symptoms and suggest one or more remedies, to explain as well as possible what might happen, and obtain your informed consent for any treatments undertaken. This must be done without outside interests influencing the practitioner; only the doctor’s professional knowledge are brought to bear.
Individuals providing professional services based on significant education requirements and state licensure are known as licensed learned professionals. They operate with state-granted monopolies and their work involves significant financial or personal risk to their clients. Examples of licensed learned professionals include physicians, attorneys, and accountants, all of whom accept and operate under the fiduciary model as a result of legislation and a history of case law. Architects share numerous attributes with these other professions, as shown in the chart below. [2]
Despite the across-the-board similarity with these other professions, architects have rejected the fiduciary model of practice, instead acting under an arms-length contractual model usually based on American Institute of Architects (AIA) Contract Documents and professional liability tort notions based around "standard of care."
For architects to continue arguing that somehow the fiduciary duty doesn't apply to them, when they act as licensed learned professionals and control so much of their clients' risk, demonstrates that they are not holding a coherent position. Architects will have two choices: agreeing they are licensed learned professionals and accepting the duty or giving up being licensed and practice design rather than architecture.
This is the broadest question, and in general, they include the following:
The practice of architecture is changing, and will soon be based completely on services grounded in competency, objective building science, and providing superb knowledge and judgment on behalf of owners.
What this means in a practical sense is just now being thoroughly understood. Conspectus will be addressing the implications over multiple posts in the coming weeks, including discussions on how fiduciary duty affects architects' contracts with owners, processes and documentation required to fulfill the duty, validating fulfillment, and available solutions.
[1] Sitkoff, Robert H. “An Economic Theory of Fiduciary Law.” Philosophical Foundations of Fiduciary Law Edited by Andrew Gold and Paul Miller, 2014, pp 198-199
[2] Adapted from Vyas, Ujjval K., “Matching Owner and Architect Expectations: Green Advocacy and the Necessity for Informed Consent” in Green Building and the Construction Lawyer: A Practical Guide to Transactional and Litigation Issues, ABA Forum on Construction Law, 2014, p. 126.